ACES needs to be fixed, but HB 110 is not the solution

Alaska’s current petroleum tax system, Alaska’s Clear and Equitable Share (or ACES, for short), was an ill-conceived policy pushed through by then-Gov. Sarah Palin in 2007. When ACES was voted on in the Senate, I was one of only five senators who voted against it. My reason was simple: I felt then and I still feel that ACES is anything but “equitable” and that under ACES the government take at high oil prices is excessive.

Those who voted for ACES did so with the best of intentions and I don’t hold that vote against them. Instead, I have been working with my colleagues to convince them to reevaluate their decision. Progress is being made because there appears to be a growing consensus in the Senate that changes to ACES are necessary, but the Governor’s proposal in the form of House bill 110 is not the answer.

In order to provide legislators with the information they need to make sound decisions regarding changes to Alaska’s tax policy, the Legislative Budget & Audit Committee (LB&A), of which I am the vice chairman, set about hiring energy policy consultants. This process began over a year and a half ago, even before Gov. Sean Parnell introduced HB 110.

Recently, the Senate Resources Committee heard from PFC Energy, a global consulting firm specializing in the oil and gas industry. Senior executives from PFC Energy testified that ACES’ progressivity feature, which increases the amount of tax owed by an oil producer as the price and profit from a barrel of oil increases, is the second highest among developed countries, making it one of the most aggressive progressivity taxes in the world. I believe that progressivity is where changes to ACES need to be focused and, working through the LB&A Committee, I have requested that PFC Energy develop a model to show how changes to specific features of ACES, features like progressivity, might impact our overall fiscal system and the state treasury. PFC Energy will present its model to the Senate Finance Committee later in this legislative session.

In mid-February, the Senate Finance Committee received a two-day presentation from Pedro van Meurs, a world renowned consultant on oil and gas fiscal systems who has a long history of working with Alaska and who has done extensive research into the competitiveness of Alaska’s oil tax relative to other oil producing regions. Van Meurs asserted that while ACES has “serious deficiencies,” — namely it is too high, too complex, and under certain scenarios nonsensical — “HB 110 is not a viable alternative to ACES.” He criticized HB 110 for making an already complex tax system more complex and for setting tax rates unnecessarily low for oil being produced from existing legacy fields like Prudhoe Bay and Kuparuk. In short, it amounts to a giveaway.

So, while evidence is mounting that ACES needs to be fixed, it is also mounting that HB 110 is not the solution.

It would have been a huge disservice to Alaskans if the Senate had passed the governor’s proposed tax cut in HB 110. We will continue to gather the information we need to make sound, reasonable and responsible decisions based on fact, not emotion. It is my belief that the Senate is poised to make calculated and well informed changes to ACES that is fair to both industry and the state.

Industry advocacy organizations such as the Alliance, the Alaska Oil & Gas Association, the Resource Development Council, and the State Chamber of Commerce are working hard to represent the financial interests of the oil industry. In the meantime, I will continue doing what I was elected to do: represent the interests of those who own the resource — all Alaskans.